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Netflix CFO: ‘We’re Ahead of Amazon’

19 Sep, 2012 By: Erik Gruenwedel

CFO David Wells tells investor group that DVD rentals remain an ‘important’ business

Amazon Prime Instant Video, and its LoveFilm Instant subscription video-on-demand subsidiary in the United Kingdom, remain more of a media fascination than immediate competitor to Netflix, the streaming pioneer’s CFO told an investor group.

Speaking Sept. 19 at the Goldman Sachs Communacopia Conference in New York, Netflix CFO David Wells said SVOD service's competition revolves more around Hulu (and Hulu Plus) than Amazon Prime and LoveFilm Instant. He said that despite LoveFilm’s strong by-mail DVD rental brand and seven-month head start launching LoveFilm Instant, Netflix has bypassed the latter in subscribers.

“The competition is with Hulu [in the United States], and I know people don’t talk about it as much because there is this perception that [co-owners Walt Disney, News Corp. and NBC Universal] are going to alter the content going into that joint venture, but they are still in a much higher viewership than Amazon [Prime],” Wells said.

Amazon has never released subscriber data for its SVOD service, which is offered free to members who pay $79 annually for its Prime two-day shipping service. LoveFilm, the by-mail disc service, has about 3 million subscribers throughout Western Europe.

The CFO said that while Amazon has doubled its streaming content portfolio this year, Netflix continues focuses much of its attention on the evolution of TV Everywhere platforms and what (and how) consumers are watching their content rather than the ecommerce behemoth’s SVOD machinations.

“Amazon has gotten a lot of press attention … but in seven months [since the launch of Netflix in the U.K. and Ireland] we think we are ahead of [LoveFilm Instant] in terms of viewership,” Wells said.

Indeed, since its bow in the U.K. and Ireland in January, Netflix said its SVOD serivce has reached 1 million subs, which is faster growth than the service saw in its first international foray in Canada. Netflix believes that Sky — the British satellite TV operator co-owned by News Corp. — is a greater long-term competitor in the U.K. with its ongoing rollout of a SVOD service.

“We’re not dismissive of [Amazon]. But in the great scheme of [SVOD and TV Everywhere competitors], there are others out there that we are focused on as well,” Wells said.

Meanwhile, the CFO reiterated support for Netflix’s by-mail disc rental business while acknowledging that steps have been taken to make it easier for users visiting the website to sign up for the service. At the same time he said there is no evidence that consumers are adopting the by-mail rental service in large numbers.

The executive said Netflix aims to maintain the “high quality of disc rentals,” including working to get subscribers their first choice title selections comparable to the satisfaction levels experienced prior to last year’s ill-fated effort to spin off the disc rentals with the Qwikster.com launch.

Wells said Netflix continues to bid on key DVD terms in online search functions despite operating with the notion that the DVD business is not growing.

Ironically, disc rentals remain Netflix's strongest profit center, notably supporting the company's ongoing international expansion of its SVOD service. Netflix generated $134 million in operating profit on disc rentals on a subscriber base of more than 9.1 million members during its most recent fiscal period. By comparison, Netflix generated $83 million operating profit on nealry 24 million domestic streaming subs, and $89 million operating loss on more than 3.6 million subs internationally.

“Overwhelmingly, the choice is streaming,” Wells said. “For some folks DVD will make sense. In a rural area, and you are a film aficionado and want the completeness of that library offering, [disc rental] make sense. But people are much more enamored with the click-and-watch convenience offered through streaming.”

Separately, Netflix has updated user interfaces for iPhone and iPod Touch. Owners of the devices who use Netflix will now have the same immersive experiences afforded iPad users and related tablets.

A new Netflix browse screen on iPhone and iPod touch lets users continue watching shows or movies previously started at the previous pause. The Instant Queue, available in some regions, is presented on the home screen just below the Top 10 list. Lower down on the screen are several personalized rows with movie and TV show recommendations.

Tapping the browse menu opens an extensive list of genre galleries with titles organized into categories. A tap on any title presents all of the information for that title and a double-tap on any title starts instant playback. Also, a search function is available everywhere in the application.

"We will soon release an optimized version of this new experience for iPhone 5 to take advantage of the larger screen," Chris Jaffe, director of product innovation at Netflix, wrote in a post on the company's blog. He said an update for Android-based smartphones is pending.

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